Over the next decade we need to find brave and clever ways to make taxpayers' money go further. Otherwise we face a demoralising process of year on year salami slicing, a deteriorating public sphere and worsening social outcomes.

The first part of a new strategy focuses on efficiency and effectiveness. On the one hand, it is about a ruthless determination to drive down the cost of back-office functions, especially in areas – like policing – which have been protected from this discipline. On the other hand, it is about carrying through the logic of the Total Place pilot scheme, liberating local authorities from central targets and regulation so they can reduce duplication and focus resources on key outcomes.

The second part involves looking at the deep structure and core objectives of sectors of provision in order to live within available resources and fit those resources more clearly to what really matters. There is much talk of a strategic defence review, which could provide a rationale for accepting that the UK armed forces can no longer seek to provide a comprehensive range of capabilities. But we need a similar strategic review in education, which could (as Polly Toynbee has argued) reduce the costs of university education while spending more on under-five and primary provision, or an NHS review that might try to lead the world in addressing the lack of efficacy of most medical interventions and instead invest more in services –like mental health – that are critical to people's resilience.

The third strand of the strategy is even more fundamental and requires us to move from an obsession with annual targets to reconceptualising and re-engineering public services around a different social purpose. Alongside the focus of the welfare state of social security we need to build an account of social productivity. This is the goal for public services of building the capacity of individuals and communities to meet their own needs. We see glimpses of what is possible in successful recycling schemes which have persuaded citizens to be as responsible as the council for the management of their refuse. Individual budgets for social care (highlighted by David Brindle) are another example, taking the pent-up demand for autonomy and dignity among disabled people and turning this into the responsibility of clients to manage their own resources around their own account of need and wellbeing.

We need to turn public services inside out. Take schools, instead of an oasis of learning trying to cram ever more into the 20% of children's' waking hours that they control, schools should be catalysts for creating a culture of learning and engagement in communities. In the short term this feels like hard work but in the longer term, as some of the best school in poor areas have shown, it means that children arrive in school ready to learn and that teachers have their work reinforced by parents and community leaders.

The ultimate aim of public policy should be to enable people to be the people they need to be to create the future they want. If our long-term strategy for public service had this starting point the coming age of austerity could also be one of great invention and progress.